Is it ever too early to plan for Christmas? (And save Tax!)

15 Nov 2021

By Steven Pryce, Tax Associate

Steven Pryce, Tax Associate at WR Partners

Christmas is, for many the best (and most expensive) time of the year. In this short article, we’ll be giving you some tips on how to give your employees some tax-free gifts and throwing some memorable tax-free parties!

Did you know The cost of decorating your office is tax deductible as the running costs of the office!

Tax-free Christmas gifts

It’s common for many employers to provide employees with a small gift at Christmas. For those who do give Christmas gifts to employees, there is a small concession in the benefits-in-kind rules, which may be of use.

A gift is considered exempt from Income tax and National Insurance consequences for both employer and employee when it meets all the following criteria:

  • The gift must not be cash or a cash voucher (one which can be converted to cash), as these will be subject to tax.

  • £50 (including VAT) is the max the cost of the gift can be per employee.

  • The gift must not be provided under a salary sacrifice scheme or similar obligations.

  • The gift must not be provided in recognition of the services performed by the employee (as part of their job) – so a gift on Christmas would be fine.

If the gift doesn’t meet the conditions above, then the full amount is subject to income tax and NIC.

Tax-free staff Christmas parties

On top of giving your employees a wonderful tax-free gift, you can additionally throw a tax-free Christmas party! A tax-free party can be provided at any time of the year if it meets these simple requirements:

  •  The party must be an annual staff party or social event for staff – so an annual Christmas party fits the criteria perfectly.

  • The party must be open to all employees and any related guests.

  • The total cost of the party (together with all other similar events in the year) must be £150 per person (including VAT) or under.

Utilising both exemptions, where you hold several social parties and where the total costs exceed the max of £150 per person, is something employers should be aware of. For example, if you were to hold a Halloween and a Christmas party each year and the Christmas party costs £40 per employee and the Halloween party somehow costs exactly £150 per employee (all those scary spider decorations!). In this case, the Christmas event could be covered by the gift exemption mentioned previously, as the amount per employee was only £40 and therefore doesn’t exceed the £50 max. Then, the second party could be covered by the parties exemption, as the cost was exactly £150 per person.

You may also want to consider the employer responsibilities of holding a Christmas Party, as just because a party may be outside of working hours and away from the workplace, doesn’t mean you are not liable for their actions! Our HR Consultant explains further here.

Have a wonderful, tax-free Christmas from the team at WR Partners!

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